Budget Council concerned about level of risk in summer economic statement
The chairman of the Irish Tax Advisory Board expressed concern over the government’s summer economic declaration, saying he was taking more risks with his plans.
The Ministry of Finance released its SES on Wednesday. The statement sets out the government’s economic and budgetary priorities for the coming year and in particular the budgetary framework within which the 2022 budget can be presented.
While the government presented a plan in April to achieve a balanced budget by 2025, the SES is putting the country on a different fiscal path, envisioning a series of much larger budget deficits, peaking at a deficit of $ 7.4 billion. euros in 2025.
Sebastian Barnes said that in terms of the fiscal framework, many aspects of the plan were in line with advice given by the Budget Council. However, he said there had been a major policy change with the plan.
“In the agenda for the government, they (the government) said that in the medium term, by 2025, they would aim for a balanced budget. What they have now said is that they want to stabilize the debt or maybe reduce it a bit – that means a 3% deficit, which is very large by historical standards in Ireland.
“This involves € 20 billion in additional borrowing compared to what the government initially planned, so it’s a big change and it’s causing concern, because the more debt we have, the more we are exposed to rising debt. interest rate or growth deficit, or other unpleasant surprises that may arise.
“The government is definitely taking more risks with these plans and that is why we are concerned.”
Mr Barnes said much of the increase was in current spending, not capital spending. “We know the government is investing a huge amount by historical standards and wants to invest a lot, especially in areas like housing and climate where we know additional funds are needed.
“They are faced with a very difficult balance between the opportunities and the need for investment, the current spending needs that they are going to have between fiscal sustainability and avoiding the overheating of the economy, so it’s a very delicate balance. and this is something that the board is going to have to assess very carefully in the months and weeks to come.
Mr Barnes said the board needed more information on what exactly the capital spending will be.
“We tend to think of capital spending as a good thing, which it probably is in a lot of cases, but it really does matter what that investment money is going to be spent on.”
Mr Barnes said it was very simple – “the more debt you have, that means a 1% change in interest rates – the impact that increases with the size of the debt, so the more debt we have. , the greater the risk.
“There are not huge differences between the debt of the two parties, but there is a significant difference. If you take the forecast the government made in April when it was looking more to balance, debt would have fallen by about three percentage points or national income per year until 2025, that means we would have really been on the line. way to a much lower rate. debt level than we currently have.
“Now it’s going to be on a track where it doesn’t go down much, the debt will likely stay above 100% of national income for many years to come.”
On the issue of the corporate tax rate, Barnes said he believed the country’s reputation was very important. “The board has no opinion on the tactics around corporate tax, but it remains a concern and we know that there are these big international changes, they are likely to have an impact on the company. ‘Ireland.”